THOMAS J. MCDERMOTT, JR.

RICHARD T. WILLIAMS

Chapter 14
Security for Costs

I.INTRODUCTION
A. Rationale for Requiring Security for Costs §14.1
B. Constitutionality §14.2
C. Chart: California Actions That May Require
Security §14.3
D. Principles and Forms Common to All Security for
Costs Statutes
1. Effect of Plaintiff's Indigency §14.4
2. Effect of Order Requiring Security on Merits of
Litigation §14.5
E. Common Forms §14.6
1. Form: Notice of Motion for Order Requiring
Security §14.7
2. Form: Undertaking (CCP §1041) §14.8
F. Statutory Offer Under CCP§998 Compared §14.9
II. NONRESIDENT OR FOREIGN CORPORATION PLAINTIFFS
A. Scope of Requirement §14.10
B. Effect of Demand §14.11
C. Effect of Failure To Post Security §14.12
D. Constitutionality of CCP §1030 §14.13
E. Procedure
1. Demand by Defendant
a. Timing §14.14
b. Contents and Service §14.15
c. Form: Demand for Security for Costs §14.16
2. Procedures of Plaintiff
a. Posting of Security
(1) Timing §14.17
(2) Nature of Undertaking §14.18
(3) Notice of Filing Undertaking
(a) Necessity for Notice §14.19
(b) Form: Notice of Filing of Required
Undertaking §14.20
b. Motion for Order That Action Proceed Without
Undertaking

THOMAS J. MCDERMOTT, JR., B.A., 1953, J.D., 1958, University of California (Los
Angeles).
RICHARD T. \VILLlAMS, A.B., 1967, I"vI.B.A.,1972, j.n., 1972, Stanford University.
Messrs. Me Dermott and \ViIIiums practice in Los Angeles with the firm of Kadisou,
Plaelzer, Woodard, Ou inn & Rossi. CEB attorney editor was CAROL S. BROSNAHAN.
::LCUIIIIY I Ull CU~)I;) 402 40] SECURITY FOR COSTS §14.2

(1) Necessity and Grounds for Motion §14.21 a. Tactical Considerations §14.52
(2) Form: Notice of Motion for Order That Action b. Timing and Contents §14.53
Proceed Without Undertaking §14.22 2. Hearing §14.54
3. Subsequent Procedures of Defendant 3. Order §14.55
a. Motion for Additional Security §14.23 4. Post judqrnent Procedures §14.56
b. Motion To Dismiss for Failure To File
VI. VEXATIOUS LITIGANTS
Undertaking §14.24
A. Scope and Rationale for Requirement §14.57
III. SHAREHOLDER DERIVATIVE ACTIONS B. Constitutionality of CCP §§391-391.6 §14.58
A. Scope and Rationale for Requirement §14.25 C. Procedure
B. Constitutionality of Corp C §800 §14.26 1. Motion for Order Requiring Security §14.59
C. Procedure 2. Hearing §14.60
1. Motion To Require Security 3. Order §14.61
a. Who May Move §14.27
VII CALIFORNIA SECURITY FOR COSTS STATUTES NOW HELD
b. Aqainst Whom Motion May Be Made §14.28
UNCONSTITUTIONAL
c. Elfeet of Motion §14.29
A. Public Entities anci Employees §14.62
d Grounds for MotioJ1 §14.30
13. D81(1IlI~ltiCJnActions §H.63
o. lilllillD of Motinll §14.:3·1
2. Heal ill~1 VIII. /\F'F'LlCABILITY OF CALlFOI~NIA SECUlilTY FOR COSTS
a. Bur den of Pi ool on Deleudant To Show F~EQUlrmVlEI\JTS IN FEDERAL ACTIONS
Grounds §14.32 A. Diversity Actions
b. Defendant's "Business Judgment" 1. Substance-Procedu re Distinction §14.64
Argument §14.33 2. Local Rules and Inherent Court Powers §14.65
c. Plaintiff's Responses to "Business .Judqrnent" B. Federal Question Actions §14.66
Arqurnant §14.34
d. Presentation of Evidence on Appropriate
Amount of Security
(1) Expenses To Be Considered §14.35
(2) Expenses Arising From Liability Under I. INTRODUCTION
Corp C §317 §14.36
§14.1 A. Rationale for Requiring Security for Costs
3. Order
a. Decision Is Discretionary §14.37 Be/'ore proccl'dill,~ ill certain civil actions, pla intiff may be re-
b. Effect of Noncompliance With Order §14.38
(II' ired h~'statute to post a hond with tile court as security to assure
c. Alternative to Compliance With Order §14.39
d. Modification of Order §14.40 puvuie ut of costs incurred by defendant. The rationales for this
e. Appealability of Order §14.41 requirement are that (1) the deposit ensures that nonresidents
IV. ACTIONS AGAINST ARCHITECTS AND ENGINEERS using the courts or California to slle Californians are responsible
A. Scope of Requirement §14.42
for costs if their suits are unsuccessful, or (2) the deposit pre-
B. Procedure
1. Motion for Order Requiring Security §14.43 vents frivolous or unrneritorious litigation.
2. Hearing §14.44 The effect of a demand for security is to stay all proceedings
3. Order until an adequate bond has been posted: an action may be dis-
a. Effect of Order §14.45
missed if the appropriate bond is not timely filed with the court.
b. Effect of Noncompliance With Order §14.46
c. Effect of Final Judgment on Order §14.47 See 2 Witkin, C,\LlFOHNIA PROCEDURE, Actions § 187 (2d ed
d. Appealability of Order §14.48 19iO).
4. Procedure for Complying With Order §14.49
V. ACTIONS AGAINST DOCTORS AND OTHER MEDICAL
PROFESSIONALS
§14.2 B. Constitutionality
A. Scope of Requirement §14.50
S<:'curity for costs statutes have been held to he subject to the
B. Constitutionality of CCP §1029.6 §14.51
C. Procedure due process requirements of notice, hearing, and imposition of
1. Motion for Order Requiring Security SOliit' stuuclarcl by which the cl.ums val iclity can he judged, and

)iavc'generaJly he(-!ll liclcl constitntioually invalid when the stat-
utes bit to provide these safeguard requirements. Beaudreau v
Sunerior Court (1975) 14 C3d 448, 121 CR 585 (holding Govt C
§§947, 951, and, by reasonable inference, Ed C §23175, which
relates to government entities and their employees as defendants
and contains almost identical language, unconstitutional); Allen v
[ordanosLnc. (1975) 52 CA3d 160, 125 CR 31 (holding CCP §830,
relating to defamation cases, unconstitutional). See also Arnett
v Kennedy (1974) 416 US 134; Mitchell v W. T. Grant Co. (1974)
416 US 600; Skelly v State Personnel Bd. (1975) 15 C3d 194, 124
CR 14. Code of Civil Procedure §1030, requiring security to be
posted without the above-described safeguards, has not yet been
reviewed at the appellate level. See §14.13.
In Beaudreau, the California Supreme Court held that due
process requires notice and hearing before dismissal of an action
for failure to file an undertaking. The hearing is deemed necessary
to determine whether the statutory purpose of deterring un-
meritorious litigation is promoted by imposition of an undertaking
requirement in a particular case. Such a hearing must necessarily
inquire into the merits of plaintiff s action, as well as into the
reasonableness of the amount of the undertaking in light of
defendant's probable expenses. Beaudreau v Superior Court
(1975) 14 C3d 448, 460, 121 CR 585, 592.
§14.3 C. Chart: California Actions That May Require Security
See chart on pp 466-467.
D. Principles and Forms Common to All Security for
Costs Statutes
§14.4 1. Effect of Plaintiff's Indigency
Code of Civil Procedure § § 1029.5(a) and 1029.6(a) specifically
provide that security will not be ordered unless defendants show
"plaintiff would not suffer undue economic hardship in filing such
written undertaking." There is ample authority in cases decided
under security for costs provisions that the court possesses inher-
ent common law power to waive security for costs and that this
power should be exercised to protect indigents' access to the
courts. Buecliold v Ortiz (9th Cir 1968) 401 F2d 371; Bu n]: of
America v SU1JCrior Court (1967) 255 CA2cl 575, 63 CR 366 (costs
'_"~._~-.JI;" I • ......"ii "-'--.. •....• ''-' ~ •• ~.
denied in suit by indigent nonresident); Sutter v Superior Court
(1966) 244 CA2d 770, .53 CR 424 (costs denied in suit by indigent
against governmental entity). Similarly, in proceedings under the
Family Law Act (CC §§4000-5174), the trial court may relieve a
nonresident plaintiff of posting security under CC §4370. See
Brandtscheit v Britton (ND Cal 1965) 239 F Supp 652.
The right of plaintiff to sue in forma pauperis has been held not
inconsistent with CCP §§391-391.6 (relating to vexatious liti-
gants) because any showing of merit by plaintiff would preclude
the statutes' application, but, if any conflict were possible, com-
mon law right to proceed as a pauper would govern for constitu-
tional reasons. Muller v Tanner (1969) 2 CA3d 445, 454, 82 CR
738,743.
This same reasoning would probably apply to proceedings af-
fected by Corp C §800(c), although the statute does not spe-
cifically provide for relief for the indigent plaintiff.
§14.5 2. Effect of Order Requiring Security on Merits of Litigation
All security for costs statutes that provide fora hearing before
posting of security will be ordered also provide that a court's de-
termination whether security be furnished is not a determination
on the merits of any issue in the action. Corp C §800(d); Ensher v
Enslier, Alexander & Barsoom (1960) 187 CA2d 407, 9 CR 732;
Olson v Basin Oil Co. (1955) 136 CA2d 543, 288 P2d 952. See also
CCP §§391.2, 1029.5(a), 1029.6(a).
Code of Civil Procedure §1029.5(a) also provides that orders
under it are not appealable.
§14.6 E. Common Forms
Certain forms may be used in all security for costs proceedings
presently in effect in California. These include the undertaking
aud notice of motion for order requiring security.
§14.7 1. Form: Notice of Motion for Order Requiring Security
Copies: Original (filed with court clerk with proof of service);
copies for service (one for each attorney of record and unrepre-
sen ted party); office copies.
[Form continued on p 468]
 Chart: California Actions That May Require Security

.;-\('/ ian 1//(/1 /1/(/1/ /\JIJJ/int/I/(' 'li II/(' ./11/ dcnuuul /\I//(Jllllt (II Effect IIf
req II ire securiu] stat u u- I) 1'1wed II rc IIr IllOliU/I
Sh ou.iui; rcqu iret! securitu permitted II onCU1np Lienee

Plaintiff is a n o u- CCP §1O.'30. Demand. Not specified.

Barc allcgati on Not exceeding $.300 Discretionary
resident or a for- Laches may bar. or lion residency. for "costs and charges," dismissal.
eign corporation. unless court orders
additional undertaking.

Shareholder Corp C §800(c); Nuticed Within 30 days Prohahi l ity ill Not exceeding $.50,000 Mandatory
derivative actiou. C §7616. support of: for "reasonable ex- dismissal.
Fin motion and after service on
heari ng. ddendalil. penses, including
I. No reasollahle
(jO-c1ay (".;t'(·II.,il)J1 i1llssillilitl' or attorneys' fees" and

Ilth'iltl,·, 11('1)('iit t() ('(lr- corporate I iab i l itv

I)' )1;11 ir n : "1'
u nt lc-r Co)'P C §:117.
"11:11',,1,, Ji( I, 'I',
'\ () jl;ll! i ~ i!): 11 if )11
ill l r <III";; It 'I i iI t I
I" ,1('I"I)dallt
I ()II}(" I' II,; III
('(JI'I)( iru l iou l.

J)('\l'ndallt is CCI' § L029..'5. 1'\oticccl \\'ithill :30 days I. \lu 111](111(' ('CUIIOInil' $.500 plus !j;,500 for \landato)'y
architect' or IIIOti()1I uud after xe rvico of hardsllip Oil plain- each additional (I ismissal.
ellgillL'cr. OJ" lre.mnu. StIlIIIllOIiS. tiff 1)\, u ndt-r- de leurlant of
related pro- lakill,~, specified class
fC'ssiolial. up to $.3000 f()]"
2. :\0 rcasollahlt'
poxs ib i l itv of "costs of dcJionsc."
callSl' of .nl iou .

Del<"lld;uil is eCl> §102~,(j. N uti cccl Within six Salll(' as ecl' §1028..5 For costs or de lc-nse, but Mandatory
d()do)', 1111rxe , uiot i o n allt! IIlollth,s n lte r larl'llikds .uu l IIOt to exceed the ksst'r cl ismissul.
or re-lutccl hc.ui mr. s('rl'ict' or ('II).!illl·C'rs: Sl'l' al iuvr-). or $.500 per clcf('lldant
pro k-xs iouu]. xurnmon s. or a total of !j;WOO.

Plailltilf is CCP §§:381- Noticed Any lillie' unti l 1. Pla inti lf is "Heasonab le expenses, Mandatory
\'cxati( )IlS :39Ui. motion uucl linal jllllgrnent ve-xatious Iiti- including attorney's dismissal.
litigant. heuri 11 ,g. is entere-d. gall t (lefi
n eel fees and not limited
ill C:CP §:3UI). to taxable costs."
2, No reuxun.rb le
]l/'tJJ,abilih
p lu in ti il will
prl'\'ai I.

Dcfclld;lIlt is i\lil &: \. C Not slwcilil,d. Not specified. Bal'l' ,ille,galioil of Not le,ss tli.u: $ IOf) Not specified.

actin: 111('1111>('1' §:lm, al'lin'stat'us. for puvme nt of costs,

()r III i lit ia. Prcvui l iuu clefellclallt

)'ec()\'ers trl~hll' costs,
~.
§14.8, SECURITY FOR COSTS 468 469 SECURITY FOR COSTS §14.9

No. _ No. _
[Caption. See §§22.12- [Caption. See §§22.12-
22.19, 22.22] 22.19] UNDERTAKING UNDER
NOTICE OF MOTION FOR ORDER
REQUIRING SECURITY; POINTS AND CCP§1014
AUTHORITIES; DECLARATION Whereas the desires to give an undertaking for __[state what] __ as
To each party and attorney of record: provided by __[state sections of code requiring undertaking]--; now, therefore,
PLEASE TAKE NOTICE that on , 19 __, at .rn., or as soon we the undersigned sureties, do hereby obligate ourselves, jointly and sever-
thereafter as the matter can be heard, in __[e.g., Department No. I the Law ally, to __[name who ] __ under said statutory obligations, in the sum of ----
and Motion Department 1 the courtroom of the Presiding Judge ] __ at dollars.
__[address ] __, __[name of moving party ] __ will move the Court under __[insert Dated: _
applicable code section ] __ for an order requiring plaintiff to furnish security in _[Signature of sureties]_
the amount of $ to ensure payment of costs that will be incurred in the
defense of the action. Comment: The above language is prescribed by CCP §l041,
This motion is made on the ground(s) that which further states:
[State ground(s), e.q. ] The sureties so signing such undertaking are bound to the full statu-
there is no reasonable probability that the prosecution of the cause of action tory obligations of the statute requiring the undertaking.
alleged in the complaint against this moving party will benefit the corporation Every provision of this code with reference to the qualification and
or its security holders. justification of sureties on undertakings authorized or required by any
law of this state shall apply to this section.
[And lOr]
this moving party did not participate in the transaction complained of in any
capacity.
§14.9 F. Statutory Offer Under CCP §998 Compared
lAnd lOr]
plaintiff would not suffer undue financial hardship in filing such written under-
Code of Civil Procedure §998 (enacted in 1971) provides a
taking, and there is no reasonable possibility that plaintiff has a cause of
means by which costs in an action may be withheld or increased.
action against this moving party. One purpose of security for costs statutes is to discourage litiga-
tion. The statutory offer procedure under CCP §998 does not meet
[Continue 1
that purpose. Although it may discourage trial, it does not discour-
This motion is based on the pleadings, records, and files in this action, the age litigation. Another purpose of security for costs statutes, how-
attached memorandum of points and authorities and declaration of
ever, is to aid the secured party in recovering its costs. The statu-
____[name L---, [and oral and documentary evidence to be presented at the
tory offer provides a powerful tool to that end.
hearing of the motion 1----.
Dated: _ Code of Civil Procedure §998 applies to all but eminent domain
litigation cases. CCP §998(f). At any time up until ten days before
ISignature of attorney J
trial, either party may serve a written offer on the other to allow
[Typed name 1 entry of judgment in accordance with terms and conditions stated
Attorney for __lname 1 __
in the offer. If the offer is accepted, it is filed, along with proof of
acceptance, with the court, and judgment is entered in accordance
with the offer. CCP §998(b). If the offer is not accepted, it remains
§14.8 2. Form: Undertaking (CCP §1 041) open for 30 days or until the outset of trial, whichever comes first,
Copies: Original (filed with court clerk); copies for service (one and is then considered withdrawn. It may not be used as evidence
for each attorney of record and unrepresented party); office at trial. CCP §998(h). Whether an offer of settlement, made under
copies. CCP §99i3, may be revoked before acceptance and within the
 ., (I : ,I UJHII Y 1UII COSTS §14.12

:;() (h,~ !,(,li(HI ~('I 1111111ill III<' sl;IIII/(' 11:1\ 111111)('('11 d('('i<i('d. S('(' 111:1I'ollris, illl'lllllillg jllslil'c ('0111'1\. CI(JsSI'(I(}1I1 Teacher, Inc. v
\,i'{(III, SII/)(')i(ll (1!J7:\) :)S CA:)d (i7, I/() CH SOJ,
(.'11111'1
SII/wf'iuJ' Court (H):3:3) 129 CA 261, 1H P2d 746.
'1/' d(,j'('ll<lalll Illak('s :1I1 on;'r 10 plu iul i lft hat i,~ rejected, :lIId at
Irial plniutilf ol ita i us a less luvoruhlo judgment than was offered, it §14.11 B. Effect of Demand
is mandutory under CCP §99f:J that plaintiff not recover any costs
F 01 lowing defendant's filing of a demand, all proceedings in the
and also pay all defendant's costs Irom the time of the ofler.
uction are stayed until ten days after service by plaintiff on
Further, the trial court may, in its discretion, require plaintiff to
defendant of a notice of the filing of an undertaking, This stay is
pay all dc le ndunt's costs horn the Aling of the complaint, incl ud-
mandatory under the statute. Cadette v Recorder's Court (1921)
ing a reasonable sum for expert witnesses necessary, to defend the
53 CA 72,199 P 187; see Carter v Superior Court (1917) 176 C
action, CCP §998(c).
752, 169 P 667; Estate of Dean (1906) 149 C 487, 87 P 13. How-
If plaintiff makes the offer, defendant rejects it, and plnintiff
ever, the stay will not prevent a party from substituting attorneys.
receives a m oie Iuvoml il e judgme nt, the court may, in its discre- T(li/lor c Poicel! (1962) 200 CA2d 780, 19 CR 536. Nor will it
tio n. require <lef'cndallt 10 pay plaintiffs costs or prc-purnt ion lor
('\[<'Ild lill.' stahdon period in CCP §58.'3(b) for dismissal for fail-
lriul , i ncl ucl iuu ('()\l\ III' (,,\1)('1'1 \\itIIl'SS!'S. CCP §H9H(di. TIll' slal- 111(' 11,1I)rill,~ [II(' (,:l,Se lo trial cllIrill!-( the pc-riod l rctwe eu defendant's
u lc- also pl()\i(I(,s 1/1<1,/lllailIlills i ucl uclc- cr()SS'-l'lllllpl:lill:llll~ :llld d('III;\lld ;\11<1philltill's filill\..( oltl«: 1111(lt'rlakin,~. Hunot u Siiperior
<1('1('11(/:1111:-;illl'llitil' ('I")SS··<iI{('IIli:lllh. C:CP §~)m'H('), ('flilli I IlJ';'fil ,=),=) (:.\.')d (-)()O. 127 CH ';'0:3.
])('(';llI\(' l'i'I;'('li\(' IIS(' 01'111(' sl'allllllr\ (Jlll'r til'lll'lld,s 1>11:111;1\'1'11-
Sl.'('llIill is 11111r('<lllirl'd to he p(l,~t(·d al)s(,111 a dCIII:md l iy clc-
1':11('1;lr('I'aslill~ 1l1111(' p{)II'lllial d:lIlla,~(' .rwurd , (:CI' §Sm~(l') 1('II(Is
11'11(1<1111. :\11 uct io u uuiv pr()ceed to jll<igllll'llt, alld to ('xccution on
III II(' IIWH' r(·"dil\, :l\ailahlc tll dl.'i'(,llddlds, l'sJ)(-,l'ia"~' ('{)rJl(lr;iI('
111l' jlld,L(lIll'llt if' defendant does not raise the issue of non-
alld iIISUr:lllCt· d('k-llclallts. rather than to plaintiffs. Tht' earlier tlw
cm upl inucc. Ltnu: r 1'1/.(1111/)S0I1 (1944) 6.3 CA2c1 8,34,148 P2d 129.
olfcr is made ,1I1(1the more uccurute ly the offer reHects an allal~sis
or the proof' uvuiluhlc to both parties, tlte more powerful is its §14.12 C. Effect of Failure To Post Security
econoll1ic impact in litigation.
r II actions ill whic-h secllrit~ I'm costs is stututori lv permitted. the 1l st'cllrit~ has not heen posted within :30 clays after a dem and,
ofler u uder CCP §!J9H is also pel'lliissihie ,1IHI provides ,I secolld
[h,C' trial court IIlay dismiss the action. CCP §l030. However, it is
uotm.uiclntorv that the court do so. Hert : c Superior Court (1917)
opportu n itv to n'CO\'l'r costs if a mnt io n for security for costs is
111l,-; II cel' s s lu l.
:3.5CA ~..n, 169 P 25::;, If a showing or
good faith, excusable neglect
h~' plaintiff is mucle , the trial court may decline to dismiss the
action or muv vacate a prior dismissal. See Rodgers v Horn (1948)
H.5 CA2d :3,39, 19.3 P2d42 (dictum; error \\'<1S that of defendant and
court). It has been held that defendant's motion to dismiss should
II. NONRESIDENT OR FOREIGN CORPORATION he denied if a proper undertaking was filed with the trial court
PLAINTIFFS before the hearing of the motion to dismiss, even if the undertak-
§14.10 A. Scope of Requirement
ing was filed after the motion was noticed for hearing. Vvilliams v
Superior Court (1935) 7 CA2d 436, 45 P2c11027, An action may be
Any defendant may demand that security of' $.300 be posted hy dismissed only against those defendants who demanded posting
any plaintiff who either resides outside Cal iforuia or who is a of security, and not other defendants. Ttiulor v Powell (1962) 200
I<neign corporation, CCP §1030. Joinder of a resident Cal iforuiu CA2d 7RO, 19 CR ,5.36. Therefore, in a case with multiple defend-
plaintiff to a nonresident plaintiff does not render the resident ants, counsel for one defendant must he careful not to rely on a
plaintiff subject to a demand lor security. T(/U1of' l; I'oiccl] (1962) demand made h~' a notlrer.
200 CA2d 7HO, 19 en 5:36, Whi le bilme to post timely security authorizes a court to order
Code ofCivi] Procedure- §l():30 applies to actions ill all Cnl ilor- dismissal, lail ure to post security does not deprive the court of
§14.1.J SECURITY FOR COSTS 472 473 SECURITY FOR COSTS §14.17

jurisdiction over the case. Estate of Balcer (1917) 176 C 4:30, 168 P §14.15 b. Contents and Service
881; Carter v Superior Court (1917) 176 C 752, 169 P 667. Neither
does dismissal for lail ure to post bond bar a subsequent action on The form of demand for security must include either a reference
the same cause if the period of limitations has not yet expired. to the code section on which it is premised or otherwise explain
Rosenthal v McMann (1892) 93 C 505,29 P 121. the ground for the demand. Taylor v Powell (1962) 200 CA2d 780,
19 CR 536. Citation of the code section alone has been held
sufficient. Cadette v Recorder's Court (1921) 53 CA 72, 199 P 817.
§14.13 D. Constitutionality of CCP §1030
No proof need accompany the demand to establish that plaintiff
The constitutionality of CCP §1030 has not been determined by is a nonresident. A bald assertion will suffice. Cadette v Re-
the appellate courts. It has, however, been held unconstitutional corder's Court, supra. See § 14.21 if assertion of nonresidency is
by at least one trial court. Under the standards set forth in Beau- challenged.
dreau oSuperior Court (1975) 14 C3d 448, 121 CR 585 (requiring Under CCP §lO15, service of the demand should be made on
that a hearing test merit of plaintiff s claim in light of legislative plaintiff s attorney, not plaintiff. If plaintiff has no attorney, or in
purpose. of undertaking statute before undertaking may be re- the absence of a known address for the attorney, service may be
quired), CCP § lO30 might well be held unconstitutional as now made on the court clerk or judge if there is no clerk.
written. However, under the reasoning in Property Research Fin.
Corp. v Superior Court (1972) 23 CA3d 41:3, 100 CR 233 (attach- §14.16 c. Form: Demand for Security for Costs
ment of property of nonresident debtor constitutional on basis of a
"situation requiring special protection to a state ... interest"), Copies: Original (filed with court clerk with proof of service);
imposition of security for costs on out-of-state plaintiffs may be copies for service (one for each attorney of record and unrepre-
considered reasonable even without an inquiry into the claim's sented party); office copies.
validity. It is arguably a reasonable fee for the privilege of using a [Caption. See §§22.12- No. _
state's court system to which plaintiff probably contributes no 22.19J DEMAND FOR SECURITY FOR COSTS
monetary support.
To each party and attorney of record:
PLEASE TAKE NOTICE that defendant, __[name 1--, requires from plaintiff,

E. Procedure __[name 1--,security for the costs and Charges that may be awarded against
plaintiff, __[name 1--, in this action on the ground that plaintiff is a
1. Demand by Defendant __[nonresident / foreign corporation 1-...
§14.14 a. Timing This demand is made under Code of Civil Procedure section 1030.
Dated: _
Code of Civil Procedure §1030 does not establish a time limit
[Signature of attorney]
before which defendant's demand for security must he made. The
demand is permissible either before or after all answer or demur- rJyped name 1
rer is filed. 'Val! D Hunter (1922) 57 CA 759,207 P 934. Beca\lse Attorney for [name 1 _
filing a demand for security stays further proceedings until hond is
posted, defendant may time the demand to extend the opportunity 2. Procedures of Plaintiff
to frame a responsive pleading. However, a defendant who waits
a. Posting of Security
until the eve of trial before presenting the demand for security
may he held to have waived it, absent a showing of excuse for the §14.17 (1) Timing
delay. Straus t; St raus (19.35) 4 CA2d 461, 41 P2d 218. This is a After being served with a demand for security, a nonresident
matter for the d ixcretio n of the trial court. Hejfroll v Los A/lll.elcs has :30days within which to post bond and serve and file a notice
Transit Lines (19.59) 170 CA2cl709, 714, .339 P2cl.567, 571 (dictum of the filill.~ of security. CCP § 1030. On motion showing good
approving Straus in general discussion of trial court's discretion). cause the trial court may extend this time limit. CCP § lO54. Ten
~,1/1.11l :,jU!llll (I(IIIU)',I:, ,1,,1 .-1 I ~, :,LLUIIIIIIUllt,U:::'I:::' sltl.LI

day~; all('1 rilill~ III(' IIl/lil'(' 111;11xccu ri l v lias 1)('('11 p(),>[(·d, III(' sLty §14.20 (b) Form: Notice of Filing of Required Undertaking
is atlt()llIalically lined alld lile act iun proceeds,
Copies: Original (Filed with court clerk with proof of service);
Pl ai nti lf may move either ex parte or by noticed motion lor all
copies for service (one for each attorney of record and unrepre-
extension of time in which to file an undertaking. See CCP § 1054.
sented party); office copies.
Alternatively, this may he handled by stipulation hetween coun-
[Caption. See §§22.12- No. _
sel, or by an agreement between counsel that a demand for secu-
rity will not be posted at the outset of a suit but at some later time. 22,19] NOTICE OF FILING OF REQUIRED
UNDERTAKING

To each party and attorney of record:

§14.18 (2) Nature of Undertaking
PLEASE TAKE NOTICE that plaintiff, [name] , , 19 , filed
The undertaking is a document executed under oath and must with the above Court [a surety bond / an undertaking executed by two
therefore include either a declaration under penalty of perjury or a personsL_. __ in the sum of $ as security for costs and charges which
uotnriz.ed affidavit. Set' CCP §1057, See form ill §14,R. may be awarded against plaintiff in the above laction / proceeding] .
TI,(' stuturorv rcqllirt'lIwllt that "sllrdics" P<l:-'Oil tl«: :-;<>('11-
will
iil v i:; not -.;ati:-;ril'd I)y uu Illldertakillg wi l l pa:,
thut "plailltilf' Dated:
ISignalure of attorney]
Cu ri cri: SlIperior COli 1'1 (WJ7) l,n C ,.52, I(m J> (j(-jl, J\()\\('\('/', it .. _- .',- --"--' ------_._.

WetS Ilcld in Corter t1l<tl the court slwuld (3.\[('11<1

additi()Jlal lillie tr)
plaintiff to correct the deficiency rather than immecliatel . dismiss-
ing the action.
Under CCP § 1056, the sureties listed may either be individuals'
or corporations' sureties. Under CCP § 1054a, plaintiff may now
deposit cash or bearer bonds as a substitute for other forms of
undertaking. Like the demand, the bond should specify the code
section under which it is filed.
The amount of $300 and the terms of the undertaking have been
prescribed in the statute. The court has been held without author-
ity to lower those requirements. Meade Cou utu Bank [) Boile!!
(1902) 137 C 447,70 P 297. The posting of a defective bond or an
inadequate bond does not forestall dismissal. But see Carter v
Superior Court, supra.
Plaintiffs' attorneys commonly obtain cost bonds by telephon-
ing a local surety company that then issues a bond in the re-
quested amount on a printed form on payment of a premium.
(3) Notice of Filing Undertaking
§14.19 (a) Necessity for Notice
The service of a notice of filing undertaking is necessary to I
t,enninate. the statutory sta~ of proceedings that f?llows a dem<:~nd I',..
tor security. See § 14.11. I'he stay extends until ten days after '.'
service of notice. l place of employment of plaintiff at the time suit is filed. See Myers
f
ITyped namei
Attorney for __Iname ] __
b. Motion for Order That Action Proceed Without
Undertaking
§14.21 (1) Necessity and Grounds for Motion
If plaintiff feels the demand for security is inadvertent or unjus-
tified, he may move for an order vacating the stay of proceedings
that automatically follows the filing of a demand for security.
Stipulation between counsel and withdrawal of the demand for
security may resolve the issue. Otherwise, a noticed motion is
necessary.
If plaintiff wishes to contend that he is not a nonresident, he
may move on that ground for an order that the action proceed
without posting of security.
Code of Civil Procedure § 1030 does not indicate how nonresi-
dency of a plaintiff is to be proved or by what standards. Determi-
nation of nonresidency is a question of fact for the trial court. Wall
[) Hunter (1922) 57 CA 759, 207 P 9.34. It may be determined
either on affidavits (Myers v Carter (1960) 178 CA2d 622, 3 CH
20.S) or on oral testimony (Larson v Blue & White Cab Co. (1938)
24 CA2d 576, 75 P2d612). Nonresidency of an individual plaintiff
has been held to be best determined for purposes of CCP § 1030
by examining the legal domicile, the actual residence, and the
 §14:22 SECURITY FOR COSTS 476 477 SECURITY FOR COSTS §14.25

, 0Carter, supra, A corporation is "foreign" if incorporated outside tion. Estate of Baker (1917) 176 C 430,168 P 881. By means of a
or California, regardless of whether it is qualified to do business in noticed motion, defendant may seek an order from the trial court
California or whether it is doing substantial business in Califor- for a new or additional undertaking in an amount reasonably re-
nia. Corp C § 171. quired to meet the costs of suit that may be charged against plain-
tiff. CCP § 1030.
§14.22 (2) Form: Notice of Motion for Order That Action Proceed
The statute provides no ceiling on such additional security. A
Without Undertaking motion for such additional security should include a reference to
CCP § 1030, and should recite facts showing that the original un-
Copies: Original (filed with court clerk with proof of service); dertaking has proved insufficient to meet anticipated court costs.
copies for service (one for each attorney of record and unrepre- In preparing such a motion, counsel should draft a notice of
sented party); office copies.
motion, memorandum of points and authorities, declarations set-
[Caption. See §§22.12- No. _ ting forth the necessary facts, and a proposed order.
22.19, 22.22 J NOTICE OF MOTION FOR ORDER
§14.24 b. Motion To Dismiss for Failure To File Undertaking
THAT ACTION PROCEED WITHOUT
UNDERTAKING If plaintiff fails to file an adequate undertaking within 30 days
To each party and attorney of record: after service of a demand for security or an order for additional
PLEASE TAKE NOTICE that on _:... , 19 __, at .m., or as soon thereafter security, the court may order dismissal of the action under CCP
as counsel may be heard, in __[e.g., Department No. __ / the Law and Motion §1030. See §14.12.
Department / the courtroom of the Presiding Judge J-- at __[address J--, plaintiff, In drafting the notice of motion and motion to dismiss the action
__[name ] __, will move the Court for an order that the above action proceed for failure to post security, counsel may recite as ground for the
without the filing of an undertaking demanded by defendant, __[name J--, on motion:
______, 19 __.
This notice is made on the ground that security for costs has not been filed
This motion will be made on the ground that plaintiff was at the time of the
in this action within 30 days after service of a demand for such security.
commencement of the above action, and ever since has been, a resident of
the State of California. The notice of motion should be accompanied by a memoran-
This motion is based on this notice, the pleadings, records, and files in this
dum of points and authorities, a declaration containing as an
action, the attached memorandum of points and authorities, and the attached
exhibit a copy of the demand for security made on plaintiff and
supporting declaration of _
establishing that 30 days have passed since service of the demand,
Ilf oral and documentary evidence to be presented I and a proposed order.
and oral and documentary evidence to be presented at the hearing of the If the trial court denies defendant's motion for dismissal, de-
motion. fendant may seek a writ of prohibition to prevent further proceed-
[Continue I ings. Garter v Superior Court (1917) 176 C 752, 169 P 667; see
Dated: _
Shell Oil Co. [j Superior Court (1934) 2 CA2d 348, 37 P2d 1078.
[Signature of attorney J
__ -0_-- However, CCP § 1030 no longer requires dismissal for failure to
[Typed name J post bond as it did before 1933. See § 14.12.
Attorney for lname J----

3. Subsequent Procedures of Defendant III. SHAREHOLDER DERIVATIVE ACTIONS

§14.23 a. Motion for Additional Security §14.25 A. Scope and Rationale for Requirement

The sole method for challenging the quality of sureties Oil a Since 1949, California has authorized security for expenses in-
bond or the adequacy of the u utlertak ins; is for defendant to 111O\"e l'lIITCdhv a defendant that is an unincorporated association, for-
for a new or add itio nal undertuking, not by exception aud juxtificu- eigll or domestic corporation, or officer or director, in defense of
 §14.2f~ st.cuuu v I Oil CO!;I~; 'liB iJi'9 SECURITY FOR COSTS §14.28

;UI .u.tio n 1Jr()lI,~ld IJY a sharchuldcr or uxsociutiou lllcllli>cr lor d('si,L';llcd to deter uumeritorious litigation against a particular de-
benefit of tile corporation or association. See Corp C §800 (former felldant. See Nork [) Superior Court (1973) 33 CA3d 997, 109 Cll
Corp C §S.34). See Ballalltine, /shuses of Shareholders' Derivative 428; §14.51.
Suits: How Far l s California's New "Security for Expenses" Act
Sourid.Regulationi', .37 CALIF L HEV .399 (1949) for an analysis ofthis
C. Procedure
statute in its original form. See also Fin C §7616 which makes
derivative actions lry shareholders in savings and loans applicable to 1. Motion To Require Security
security for costs provisions of former Corp C §834, which has been §14.27 a. Who May Move
replaced by Corp C §800.
Although shareholder derivative actions provide a rerne dv at The right to seek security is available to the corporation or as-
law against Faithless diredor.~ and Ill;lllag('IIIt'llt, these actiolls sociation, .uid to any named defendant who was an officer or direc-
Ira\'(' 1)('(:'11(l('('ctSiOIl;,tlh l)J"(lIlgIJt. not to r('dress real \\'J"OII,\,'>.l m t lo lo r at lll(' tinu xu i! WaS heglln or at the time of the transaction
r('ali/.c Oil [Iwir 1IIIiS<lII(,(' vul uc- ill S<'ltil'III(,II!. SII('II xu i l-, ;I\'(' (,'IJlllpLlilll'ci ()I, C:()IP C §800(c). Though this right is hroader than
klIO\\'1J as "strike s u it s." SOil\(' l('~islatlJ1'('s ((',~ .. :\('\\ Yo rk , :\('\\ Illal pruli,kd \)\ :111\ utlln xtulr-, it is u.urowc-r than under former
,krsl'\, pClJlls\l\alJia, \\'isl'()JlsilJ. <llid C"lil'tlllli<J) 1>l'li('\('d tll;ll ;111 CIJJ'P C \l'nJ a~ (JJ'i,~illall:v clJackel, which jx-rmitted any third
p;tl'l~ dc,r(,II(Lilll, whether or not associated with the corporation,
impediment to Slll'll xu its was appruptiatc. SeC' Cohen I' BCI/cfi-
clul Lvulu s, Loa u Corp, (H)-19) :3:3'7US 54t; Wood, SUH\EY\:'\I) to d('I11alld sC'clirity in derivative actions. See, e.g., Toboni v Pen-
HEPOHT HEG,-\RDINC STOCKIlOLDEHS' DEHI\:\Tl\'E SlJlTS (19-~4). uinui on Mill inert] Co. (1959) 172 CA2d 47, .341 P2d 845.
Sec also K(liscr li Eastol/ (1957) 151 CA2c1 :307,:311 P2d 108.
§14.28 b. Against Whom Motion May Be Made
§14.26 B. Constitutionality of Corp C §800
Corporations Code §800(c) does not authorize a motion for seen-
Th- co uxti t utioun l i tv of iorruer Corp C §S:34(h) (IIOW Corp C rity ill e\('r) actio)1 agaillst a corporation, hut only in derivative
§SOO(c)-(d)) vvus uplu-l«] hv the Supreme Court ill BC!lcrh({ch c adi()Jls ill which plaintiff has pleaded the allegations in Corp C
.IIII/O Oil Co, (19.54) 42 C2c1 11,26,5 P2d 1, a,L';ains t a challenge that §t;()()(h), i.c. that plaintiff was a member, registered shareholder,
it deprived plaintiffol'e(jual protection uricler the Ll\VS in violation or holder or a voting trust certificate (or holder by operation of law
of the federal uud state constitutions. The California Supreme lrom a holder) at the time of all or part of the complained-of trans-
Court relied heavily Oil the decision ofthe United States Supreme action (or a shareholder not meeting those requirements but per-
Court in Colicn v Bclte./lci(/l Indus, Luau Corp, (1949) :3:37 US 541, Illitted to bring suit in the court's discretion), and that he made
which held a similar but harsher New Jersey statute constitutional efforts, stated with particularity, to get action from the board of
and declared that a state bas plenary power over litigation involv- directors and has informed them or the corporation of the ultimate
ing corporations, cre.iture s of the state, as well as plenary power to facts of each cause of action.
provide the terms OJ) which it will permit liti,L';ation in its courts, Defendants may not require plaintiff to furnish security when
See also Melancon t: Superior Court (1954) 42 C2d 69S, 2()H P2d plaintiff-shareholder is vindicating the personal rights of a
1050, shareholder and not seeking redress Ior some injury to the corpo-
The constitutional requirement of procedural clue process is ration. If plaintiff s snit is for personal rights and seeks relief that
IlIlI)' satisfied b y the provisions of Corp C §§317 and SOO. In would inure to his personal benefit, it is immaterial that the facts
He(/I{(/re({11 /' Superior Court (1975) 14 C3cl448, 121 cn .5S.5, the stated might also permit an action by the corporation, Hagan v
S Ilpr<:'llle Court 01' Cul iioru in expressly approved the notice a 11(1 Su pcrior Court (1960) 53 C2d 498, 2 CR 288 (decided under
hearillg procedures 01' these sections, and noted approvinglv the lorrner Corp C §8:34). However, H agan recognized that the com-
court of appculs re-con I11H.' ndution of former Corp C §8:J4 (no\\' plaint might conta iu separate counts, some seeking individual re-
Corp C §8(0) as a possible model lor securitv for costs statutes lief and some seeking relief for the corporation derivatively. A
 §14.~9 SECURITY FOR COSTS 480
motion for security is appropriate on the derivative counts. 53 C2d
at .50.3,2 CR at 29l.
Security may be sought not only from the original plaintiff, but
from an intervening complainant. For example, when an officer
sues a corporation he controls for money allegedly due and owing,
a shareholder may intervene and complain that the corporation is
being defrauded by a collusive suit, but then the intervening
plaintiff may be required to post security. See Shively v Eureka
Tellurium Gold Mining Co. (1900) 129 C 293, 61 P 939; Tlwnnan
v Dome Producing & Developing Co. (1942) 50 CA2d 201,122 P2d
927.
The number and amounts of plaintiff's shares is immaterial to
the security posting requirement. The New York statute provides
that security may be sought only if plaintiff holds less than five
percent of any class of the corporation's shares and his shares have
a market value of less than $50,000. NY Bus Corp Law §627
(McKinney Supp 1975). Although defendants in California have
sought to read into Corp C §800 (former Corp C §834) similar
limitations to excuse larger plaintiffs from this requirement, Cali-
fornia courts have consistently rejected the argument that "sub-
stantial interests" in the corporation should work some exemption
horn this requirement. Suburb an. 'Water Sus. v Superior Court
(1968) 264 CA2d 956, 71 CR 45; Wood v Gordon (1952) 112 CA2d
374, 246 P2d 84.
§14.29 c. Effect of Motion
The proceedings in a derivative action are automatically stayed
hy the filing of a motion requesting security from the time the
motion is filed until ten days after disposition of the rnotiou. Corp
C §800(t). The stay does not run until the required secu ritv itself
has heen posted.
The stay is a complete bar to proceedings, and plaintiff is not
entitled to conduct depositions in preparation for trial; it is a step
in the action's prosecution. Barber v Lewis & Kalljill(lll, Inc.
(1954) 125 CA2d 95, 269 P2d 929.
§14.30 d. Grounds for Motion
Corporations Code §800(c) lists two alternative grounds for the
motion for security, and a motion may he made on either or hoth
grounds, with the ground set forth in the motion.
481 SECURITY FOR COSTS §14.32
The first ground specified in the statute is that "there is no
reasonable possibility that the prosecution of the cause of action
alleged, ... against the moving party will benefit the corporation
or its shareholders." (Emphasis added.) Corp C §800(c)(1). The
second ground is that the moving party "did not participate in the
transaction complained of in any capacity." Corp C §800(c)(2).
§14.31 e. Timing of Motion
Within 30 days after the service of summons on either the cor-
poration or any defendant officer or director, the party served may
move the trial court on notice and hearing for an order requiring
plaintiff to furnish security. Corp C §800(c). Compare New York
procedure in which the motion may be made at any time before
final judgment. NY Bus Corp Law §627 (McKinney Supp 1975).
On application of any defendant and showing of good cause, the
trial court may extend the 30-day period for seeking security up to
90 days. Corp C §800(c). Without a showing of excuse, a motion for
security is generally considered waived if not filed within the
prescribed period. However, even absent a court-ordered exten-
sion, when a series of stipulations between counsel extended de-
fendant's time to move, answer, or otherwise plead to the com-
plaint without explicitly mentioning an extension of the time
within which to file a motion for security, it was held that a trial
court could properly entertain a motion for security filed 83 days
after service of summons. Consolidated Dock & Storage Co. v
Superior Court (1971) 18 CA3d 949, 96 CR 254.
2. Hearing
§14.32 a. Burden of Proof on Defendant To Show Grounds
The burden is on the moving defendant to establish a probabil-
ity in support of one or more of the statutory grounds. Corp C
§800(d). Beuerbacli v Juno Oil Co. (1954) 42 C2d 11, 265 P2d 1;
Burt v Irvine Co. (1965) 237 CA2d 828, 47 CR 392; Wood v Cor-
dOll (1952) 112 CA2d 374, 246 P2d 84. See §14.30 for grounds.
Defendant need only make a sufficient showing as to one statu-
tory gronnd as applied to only one cause of action within the
complaint. Builey v FosC(l Oil Co. (1960) 180 CA2d 289, 4 CR 474.
III determining whether defendant has met his burden, the trial
court must evul uate the possible defenses plaintiff would have to
§"14.33 SECUHII Y FOil COSl S 482 483 SECURITY FOR COSTS §14.36

()v('n'olll(' to prevail at trial. It is sulficir-ut that tilt, trial COllrt §14.34 c. Plaintiff's Responses to "Business Judgment" Argument
evaluate the dcf(~lIsCS ,1lId nile! tliom I()rnlidahlc; the trial court
need not determiuc the merits of the complaint because there Plaintiff may respond to the business judgment argument by
would be insufficient evidence for it to do so. Marble v Latchford challenging the good faith of members of the board of directors,
Glass Co. (1962) 205 CA2d 171,22 CR 789. e.g., by presenting evidence that a majority of the board was not
Appropriate sources of evidence for plaintiff or defendant in- "disinterested" but was actively engaged in fraud or constructive
clude the corporation bylaws, minutes of the board meetings, oral fraud against the corporation. Or plaintiff may show that contrary
testimony of directors, management, and experts consulted by the expert opinions were available to the board at the time of its deci-
sion, but were not seriously considered by it.
directors in the making of a particular decision.

d. Presentation of Evidence on Appropriate

§14.33 b. Defendant's "Business Judgment" Argument Amount of Security
§14.35 (I) Expenses To Be Considered
Till' al,l.';lIll1('lIt 1I1():-;1
11('<111('1111:111,\(1('h\ dcl'clldallls s(,<,killl.'; S('-

t'lllily ill a :-;1\;l\"(,Il()ld('r x u i l is tllal thl' l"()rp()I,lti()1I (or its hoard (II \t tll\' Ill'arill,!.';, till' pu rt i ox IIIIISI pre scut c-viclence l iv which the
din'd()rs) has lI,sl'd!.';()od lailh ,\1](1"hIlSillc.';s jlld!.';lIll'III·,'· S('(' ,Hor- (,()llrt (',III dcterillilll' ,lit up propriu le .uuou nt of" security, including
1)/(' r L(/fcl,!(II'd Cl(/ss Cu. (H)(-i2) 205 CrUd 111, l'7H, 22 en 7m), ('1)11rl ('()sts and attorneys' fees for the corporation and moving
I~n. See also ']'//(1111(/.)' t; Su uuuer« Curoscoue Co. (1958) 160 CA2d defendant. Security will not be allowed in an amount greater
2:34,24,5,324 P2c18D3, 900; Olscn: l) B([sill Oil Co. (195,5) 1:36 CA2d than the statutory ceiling of $50,000. Corp C §800(d).
543,559,288 P2d 952, 962. The largest element of corporate expense is attorneys' fees. It
Both the Thomas uur] Olson courts took note of the opinion in has been held appropriate for defense counsel to offer testimony
Filldleu v Corrett (19.52) 109 CA2d 166,240 P2cl421, which held hased on their own professional experience ahout the amount of
that when an independent and disinterested majority ofthe hoard tillle and dImt probably necessary for defense of the corporation
of directorx acts ill good faith within the scope of its discretionary ill the pending litigation. Olson l) Basin Oil Co. (19.55) 136 CA2d
powers to m.m.u;« the corporation and n~asonahly lwlicvcs that its 5-U, 2HH P2d 9.52.
refusa] to hrillg litigatioll, as demanded hy plaiutil], is a proper Th« cnurt muv also consider the number of causes of action
liu s iues« judgn1<:'nt in tilt' best interests of the corporation, a invol vod, the number of different defendants represented by clif:"
shareholder Wil1110t he permitted to interfere with that discretion lercut counsel, and the complexity of the issues to be resolved.
hy heginnillg all uct io n lor the corporation, See Koster t; Warren (9th Cir 1961) 297 F2d 418.
In motions under Corp C §800(c)(l), defendant should seek to
present evidence that he has acted within guidelines laid down in §14.36 (2) Expenses Arising From Liability Under Corp C §317
Filldley and that there would be no reasonable possihility that the If an agent of a corporation is successful on the merits in the
prosecution of the suit would benefit the corporation. defense of a derivative action or in the defense of any claim, issue,
Substantial latitude is given to the judgment of a corporate or matter in the derivative action, the corporation must reimburse
hoard of directors uncler Filldleu, e.g., "mistake of judgment on its agent for expenses actually and reasonably incurred by the
the part ora board ofdirectors does notjustify taking the control of agent in connection with his defense if he acted in good faith, in a
corporate affairs from the hoard of directors and placing it with the manner he believed to be in the best interests of the corporation,
stockholders. The hoard of directors uuuy make incorrect cleci- and with the care of an ordinarily prudent person in similar cir-
s ion s, as well as correct o uex, as long as it is b.ithful to the corpora- cumxtnnces. Corp C §317(c)-(cl). An agent of a corporation who is
t iou ancl IlSt'S its best business jutlgm eut." 109 CA2cl at 178, 240 unsuccessful in defending against a derivative action or who set-
P2d at 42H. See also Burl c lroinc Co. (l9G.5) 237 CA2d 828,47 cn tles muv, if the court determines he is fairly and reasonahly enti-
392 (sale at less thun market value was perhaps ill corporation's tled to incl e u m itv , he reimbursed for expenses or amounts paid.
I>t'st interest; security required). Corp C ~:)17(c).
§14.37 SECURITY FOR COSTS 484
For discussion of indemnification under former Corp C §8.30
(now Corp C §317), see McIntyre, Directors and Officers Liability
Insurance, 42 LA B BULL 57 (1966).
3. Order
§14.37 a. Decision Is Discretionary
After hearing, the court, exercising its discretion, may fix the
nature and amount of security not to exceed $50,000 (Corp C
§800(d)), setting a reasonable time within which the security or-
dered must be furnished, or may refuse to order security to be
furnished. The decision by the court is a matter within its sound
discretion, and its balancing of substantial and conflicting evi-
dence will not be reversed except for an abuse of that discretion.
Oser v Wilcox (9th Cir 1964) 338 F2d 886.
§14.38 b. Effect of Noncompliance With Order
Dismissal is mandatory for failure to comply with an order for
security, and an action must be dismissed against any defendant
who had moved for security on plaintiffs failure to post bond.
Corp C §800(d). On noticed motion, however, the court, as it
deems appropriate, may extend plaintiff's time to post hondo CCP
§1054; Beuerhncli v Juno Oil Co. (1954) 42 C2d 11,26.5 P2d 1.
If unwilling to file a bond, plaintiff may voluntarily dismiss the
action; in this case, it is error for the court to make the dismissal
"with prejudice." Enslier v Ensher, Alexander & Bar800111, Inc.
(1960) 187 CA2d 407,9 CR 732.
If dismissal is ordered for failure to provide security, attorneys'
fees may not he awarded against plaintiff. It was the intention of
the legislature that defendant's attorneys' fees be reimbursed only
from the security. Freeman v GoldlJcrg (1961) 5.5C2d 622, 12 Clt
668.
§14.39 c. Alternative to Compliance With Order
Plaintiff may anticipate a motion for security by posting bond in
the amount of $.50,000 at the time of filing the complaint, or may
post that security at any time either before or after a motion or
order is made. Such all action is deemed in full compliance with
Corp C §800, and no further bond or security may be required.
Corp C §800(e).
485 SECURITY FOR COSTS §14.43
§14.40 d. Modification of Order
Corporations Code §800(d) declares the COUlt may thereafter
order the security increased or decreased on a showing that it is
inadequate or excessive. Melancon v Superior Court (1954) 42
C2d 698, 268 P2d 1050; Beuerbacli ojuno Oil Co. (1954) 42 C2d
11, 265 P2d 1. Plaintiff may be required to furnish security for
expenses of defendant at trial court and on appeal. After a judg-
ment for defendant, the trial court does not lose its jurisdiction to
increase (or decrease) security for costs pending appeal. No dis-
tinction is made between expenses incident to trial and those
incurred in defending the judgment on appeal. Kaiser v Easton
(1957) 151 CA2d 307, 311 P2d 108.
§14.41 e. Appealability of Order
A court's order requiring plaintiff to furnish security is notap-
pealable. However, a judgment of dismissal for failure to furnish
security is appealable. Woodman v Ackerman (1967) 249 CA2d
644, 57 CR 687.
IV. ACTIONS AGAINST ARCHITECTS AND ENGINEERS
§14.42 A. Scope of Requirement
Since 1968, any licensed architect, landscape architect, en-
gineer, building designer, or land surveyor, who is a defendant in
an action for damages for "error, omission or professional negli-
gence in the creation and preparation of plans, specifications, de-
signs, reports or surveys which are the basis for work performed or
agreed to be performed on real property" may demand security for
costs from plaintiff CCP §lO29 ..5(a). This provision is not applica-
hIe to actions for wrongful death or bodily injury, nor to actions
brought in small claims court. CCP §1029.5(b).
As of this writing, there have been no recorded decisions inter-
preting this statute.
B. Procedure
§14.43 1. Motion for Order Requiring Security
Within .30 days after service of summons, a defendant architect
or engineer may move the trial court for an order requiring plain-
tiff to furnish security in the amount of $500. The motion must be
§14.44 SECURITY FOR COSTS 486 487 SECURITY FOR COSTS §14.50

noticerl lor heuri llg uucl must be uccompauiecl by an aHidavit set- 11\(\ndutory that the trial court re q uire plaintiff to pay defendant's
ting forth bets that would show that the claim against the demand- costs. CCP § 1029.5(cl). The term, "costs of defense," used in this
ing defendant is "frivolous." CCP § 1029.5(a). statute, is not the same as "costs and charges" under CCP § 1030.
The latter has been interpreted to incl ude court costs only, not
§14.44 2. Hearing attorneys' fees. There is no case law yet to determine whether
attorneys' fees are part of "costs of defense" within the meaning of
At the hearing on the motion, the demanding defendant must this statute.
make a showing on two issues. First, defendant must show that If plaintiff prevails in the action, defendant is required to pay
p laintitf will not suffer 1I11d\1ehardship in furrrishi ng the under- the cost to plnintiff of obtaining the security posted. CCP
takillg .uu l ,~l,(,()lld, tktt tl\('rc is 110 ITaS()llahk posxil ii l i tv that § 1()2~,5(d). The provis ion in CGP §1029.6(d), which requires doc-
plailtlilf has a l':lIISl' .ul i o n a,L(:lillst tilt' d('III;tlldill<L'; dt'li'lId;!I!!.
()r
Ims :ul<l otl ic-r Ilc:tltll practitioners to pay plaintiff's costs in de-
CCP § 1()2~)}5(a). 1('II<iillg:1 mut i o n l o d ixru i s», is lIot inc-l ucler l ill CCP §1029.5(d).

3. Order §·14.48 d. Appealability of Order

§14.45 a. Effect of Order Dct crm iuutio n by the court as to whether security is required
ali(I its determination of the amount of the security are not appeal-
If the court finds that security is appropriate, the court will set a
abl«. CCP §1029.5(a). Presumably, an appeal may be taken from a
reusonahle time in which the bond is to he filed. CCP §l028.<5(a),
judgment dismissing the action. See § 14.41.
The amount of the bond must he increased by $,500 for each de-
fendant IIlaking a demand beyond the first defendant to a
maximum 01' $.3000. CCP §1029.5(c). §14.49 4. Procedure for Complying With Order
The courts determination on the furnishing or securirv is not a ThL' statute requires that there he at least two sufficient sureties
deterrninntion of the merits of the action and therefore does not Oil the bond Presumably, CCP §§1054a and 1056 apply to this
work a collateral estoppel later in the action. CCP § 1029.,5(a). security requirement as they do to all others, so that one corporate
surety, a cash deposit, or bearer bonds or notes are acceptable
§14.46 b. Effect of Noncompliance With Order substitutes. The statute does not provide for a procedure to chal-
If the court orders posting of security and plaintiff does not file a lellge qualifications of personal sureties nor specify whether the
sole meaus for challenge would be a motion to dismiss for failure
bond within the time set hy the court, dismissal of the action is
to post adequate security. See §§14.18, 14.23.
mandatory. CCP § 1029.5(a). Without the benefit of opinions in-
terpreting this section, a firm conclusion is not possible, but deci-
sions under other security statutes indicate that the requirement V. ACTIONS AGAINST DOCTORS AND OTHER
of dismissal would not bar the court hOIl1 accepting a late filing of MEDICAL PROFESSIONALS
security if there were a showing of excusahle neglect or mistake §14.50 A. Scope of Requirement
hv plaintiff, and no prejudice to defendant. See § 14.38. Failure to
post bond liv the court-ordered date will not oust the court of Since 1970, security for costs has been available in actions for
jurisdiction over the case altogether. "error, omission, or negligence in the performance of professional
services, or performance of professional services without consent"
that may be filed against a licensed "p'hysician and surgeon, den-
§14.47 c. Effect of Final Judgment on Order
tist, registered nurse, dispensing optician, optometrist, pharma-
In actions requiring a written undertaking under CCP §1028.5, cist, registered physical therapist, podiatrist, ... psychologist,
iljuclgmeut is later awarded to defendant or action dismissed, it is osteopath, chiropractor, clinical laboratory bioanalyst, clinical
 488
§14.51 SECURITY FOR COSTS
, laboratory technol ogist, or veterinarian," and hospitals em-
ploying those persons. CCP §1029.6(a).
The security for costs requirement is not applicable in small
claims court actions. CCP §1029.6(h). It is available in wrongful
death and bodily injury actions, unlike the security provision for
architects and engineers discussed in §§14.42-14.49.
§14.51 B. Constitutionality of CCP §1029.6
Code of Civil Procedure §1029.6 contains two security for costs
provisions: One provision applies to actions seeking compensa-
tory damages and provides for notice and hearing. CCP
§1029.6(a). The other, which provides for security in addition to
that provided for in CCP §1029:6(a), is intended to apply wher-
ever exemplary damages are sought and permits an ex parte appli-
cation. CCP §1029.6(e).
In Nork v Superior Court (1973) .33 CA3d 997, 109 CR 428, the
only reported decision interpreting CCP §1029.6(e), the provision
providing for an ex parte application was held unconstitutional for
failing to provide appropriate due process safeguards. Nork noted
the United States Supreme Court decision in Sniadacli v Famili;
Fin. Corp. (1969) .395 US 337, and the need for notice and hearing.
See also Beaudreau v Superior Court (1975) 14 C3d 448, 121 CR
585, in which the California Supreme Court expressly approves
the holding in Nork. See §14;2.
The provisions providing for notice and hearing in CCP
§1029.6(a), together with the standard that the claim must be
shown to he "frivolous," appear to satisfy the requirements of clue
process dictated by Beaudreau. However, a constitutional chal-
lenge might he made on the basis that the fact that so limited a
group as those engagecl ill health care is singlecl out for special
statutory treatment violates the equal protection provisions of the
federal and state constitutions. The Nork court explicitly avoided
determining this issue. Nor" v Su pcrior Court (1973) :33 CA3cl
997, 1000, 109 CH 428,4.30. To the extent that this statute may be
\iUI1181'ableto constitutional challenge for impermissibly clis-
criminating in iuvor of a selected class, CCP § 1029.5, applicnble to
architects and engineers and discussed ill §§ 14.42-14.49, may
also he vulnerable.
489 SECURITY FOR COSTS §14.55
C. Procedure
1. Motion for Order Requiring Security
§14.52 a. Tactical Considerations
The attorney must weigh the advantages of amotion for sum-
mary judgment against the advantages of a motion for security for
costs. Code of Civil Procedure §1029.6(f)-(g) provides that a de-
fendant who files or joins a motion for security for costs is pre-
cluded from later filing a motion for summary judgment, and vice
versa.
§14.53 b. Timing and Contents
Within six months after service of summons, a medical profes-
sional defendant may move the court for an order requiring plain-
tiff to post bond. CCP §1029.6(a). Counsel for other defendants
who have appeared have 30 days from notice of such a motion in
which to join in that motion, or they will be precluded from bring-
ing any separate security motion. CCP §1029.6(a); §14.43.
The motion for security must be accompanied by an affidavit
setting forth facts demonstrating that plaintiff's cause of action
against the medical professional defendant is "frivolous." CCP
§1029.6(a).
§14.54 2. Hearing
At the hearing on a motion for security, the moving defendant
must demonstrate hoth that plaintiff will not suffer undue
economic hardship in posting security and that there is no reason-
able possibility that plaintiff has a cause of action against that
defendant. Each defenclant seeking security must make his own
showing concerning the cause of action. CCP §1029.6(a).
§14.55 3. Order
If the court determines that security is appropriate and estab-
lishes the amount required, it will also set a reasonable time in
which bond must be filed, and the action must be dismissed
<lp;ainstthe appropriate moving defenclants if security is not
posted within that time. CCP § 1029.6(a).
§i4.56 SECURITY FOR COSTS 490 491 SECURITY FOR COSTS §14.59

The amount of security is not defined but is limited to $500 any cause of action already finally determined against him (CCP
against a single defendant (CCP §1029.6(a)) and to a total of $1000 §39J.(b)(2)).
if there are multiple defendants (CCP §1029.6(c)). Code of Civil In any type of action, any defendant may move the court for an
Procedure § 1029.6(a) requires plaintiff to furnish two sufficient order requiring a plaintiff to furnish security in an amount
sureties to support the bond. Presumably, CCP §§1054a and 1056 sufficient to cover defendant's reasonable expenses, including de-
would permit one corporate surety, a cash deposit, bearer bonds, fendant's attorneys' fees (CCP §§391(c), 391.3) on the ground that
or notes as an acceptable substitute. See §14.18. plaintiff is a vexatious litigant and on the further ground that there
The court's determination on the motion is not a determination is no reasonable probability that plaintiff will prevail in the pend-
Oll the merits of any issue in the action. CCP § 1029.6(a). ing liti gation against the moving defendant. CCP §391.1.

§14.56 4. Post judgment Procedures §14.58 B. Constitutionality of CCP §§391-39"1.6

If' the action i.~(\isJllissed or if de leudunt prevails, it is muncl.r-
The JC,l!;i:;lati\(:' scheme in CCP §§391-391.6 has been upheld
torv that the court re qu iro plaintiff to hear defendallt's "COli rt

costs." CCP §102Y.()(d). Compare CCP §1029.5(c1), whicl: lISe'S

or
al!;aillsl a v.uic-tx co nxtitutio nu] attacks made Oil due process and
equal protection grounds. They have been held not unreasonably
"costs of defense." No reported opinions have interpreted these \;t.l!;1I(:',urhitrurv, or uureasonahly discriminatory against individ-
phrases in either section.
uuls representing themselves, discriminatory against indigents, Of
If plaintiff prevails, after having filed required security, defend-
unreasonably burdensome in stating terms on which a state may
ant who moved for security must pay plaintiff's cost to obtain a
permit access to its courts. Muller v Tonner (1969) 2 CA3d 445,82
bond, and if defendant moved to dismiss the action for plaintiffs en 738; Taliaferro v Hoogs (1965) 236 CA2d 521, 46 CR 147.
failure to post adequate bond, and plaintiff later prevails, CCP
§ 1029.6(d) also requires defendant to pay plaintiff's costs in de-
fending the motion to dismiss. This latter obligatioll is not ill- C. Procedure
eluded in CCP § 1029 ..5(cl), deal ing with architects and engineers.
§14.59 1. Motion for Order Requiring Security

At anv time until final judgment is entered, defendant may

VI. VEXATIOUS LITIGANTS move [or an order requiring plaintiff to post security. Noticed
§14.57
mntio n and hearing are necessary to satisfy the constitutional right
A. Scope and Rationale for Requirement
to clue process. See Beaudreau v Superior Court (1975) 14 C3d
In 1963, the legislature determined that a security for costs pro- .J48, 121 CR 585; Norlc v Superior Court (1973) 33 CA3d 997, 109
vision similar to that used in connection with shareholder deriva- en 428.
tive suits woul d curh the abuse of vexatious litigation. The bring- Affidavits must accompany the motion to show both that plain-
ing of repeated actions in propria persona by persons whose tiff meets the statutory definition of a vexatious litigant and that
claims had heen fully litigated was the primary concern of the there is not a reasonable probability that plaintiff will prevail in
legislature. Code or Civil Procedure §391(b) defines a "vexatious the litigation against the moving defendant. CCP §391.1. Filing of
litigant" as a person who, in the seven years past, has maintained motion for security before the trial under CCP §391.1 auto-
in propria persona at least five actions outside small claims courts matically stays proceedings and relieves moving defendants from
which have heen determined adversely to him or were pending pleading in response to the complaint until ten days after the
unjustifiably for at least 1\,\,0 years without heing brought to trial motion has heen denied, or, if it is granted, until ten days after
(CCP §391(h)(1)); or any person who repeatedly relitigates or at- pluiutifl' h.r« served defendant with notice of Filing the required
tempts to rel itigate against the same defendant in propria persona, sccuritv. 'When a motion is made at any time thereafter, the litiga-
§14.6Q SECUnlTY FOR COSTS 492 493 SECURITY FOR COSTS §14.64

tion is stayed lor whatever period the court decides after the mo- VII. CALIFORNIA SECURITY FOR COSTS STATUTES NOW
tion is denied or the security is furnished. CCP §391.6. HELD UNCONSTITUTIONAL
§14.62 A. Public Entities and Employees
§14.60 2. Hearing
Government Code §§947, 951, and Ed C §23175, required post-
At the hearing, the trial court may consider oral and written tes- ing of security in actions against public entities, public
timony by witnesses and affidavits. The burden of establishing the employees, and the University of California. The first two sections
statutory conditions rests on the moving party. Muller v Tanner have been held unconstitutional. Beaudreau v Superior Court
(1969) 2 CA3d 445,82 CR 738. (197.5) 14 C3d 448, 121 CR 585. The latter section, identically
The importance of presenting a complete factual record of both worded, is presumably also violative of due process. See § 14.2.
the statutory prerequisites that define a vexatious litigant is illus-
tratedin Muller v Tanner, supra, in which the trial court deter- §14.63 B. Defamation Actions
mined plaintiff to be a vexatious litigant and required him to post
security, and on his fail ure to do so, dismissed the action. On Code of Civil Procedure §830 required a bond in defamation
appeal, the reviewing court overturned the dismissal, finding actions before summons would issue. That statute was struck
there had been no evidence adduced in the trial court to sustain down as unconstitutional in Allen v [ordanos' Inc. (1975) 52 CA3d
the other statutory prerequisite on which the order for security 160, 125 CR 31. This decision rested on the decision in Beaudreau
must stand, i.e., that there is no reasonable probability plaintiff v Superior Court (1975) 14 C3d 448, 121 CR 585.
will prevail in the case at bar. 2 CA3d at 464, 82 CR at 751.
Some evidence must also be presented by the moving defend-
ant relating to the time and effort probably necessary to defeat VIII. APPLICABILITY OF CALIFORNIA SECURITY FOR
the claim. A court's order will not be sustained as being reason- COSTS REQUIREMENTS IN FEDERAL ACTIONS
able and nonarbitrary when it appears from the record that the A. Diversity Actions
amount of security for attorney's fees specified by the trial court
§14.64 1. Substance-Procedure Distinction
was picked out of "thin air." 2 CA3d at 465, 82 CR at 752.
Whether state security for costs statutes are applicable in diver-
§14.61
sity actions in the federal courts depends on whether the amount
3. Order
of security to be furnished is considered so large that it creates a
If, on the evidence, the court determines plaintiff is a vexatious substantive liability. Security requirements applicable to
litigant and there is no reasonable probability that he will prevail, shareholder derivative actions have been treated as giving rise to
it is mandatory for the court to order plaintiff to furnish security in substantive liability.
an amount to be fixed by the court, and thereafter from time to In Cohen v Beneficial Indus. Loan Corp. (1949) 337 US 541, 555
time to he increased or decreased at the court's discretion. CCP (relating to the New Jersey derivative suit security for costs stat-
§39L3. As yet there have been no decisions dealing with chang- ute), the Supreme Court held that "the security requirement
ing the amount of security. creates a new liability where none existed before, for it makes a
TIle security may be in the form of cash, some other security stockholder who institutes a derivative action liable for the ex-
fixed by the court, or a bond, in an amount sufficient to cover pense to which he puts the corporation and other defendants if he
defendant's reasonable expenses, including defendant's attor- does not make good his claims" and, relying on Erie R.R. v
neys' fees. CCP §§391(c), 391.3. Tompkins (1938) 304 US 64, found that the security statute is part
If the court orders plaintiff to provide security and he hils to do of the state law administered by the federal court.
so, it is mandatory that the court dismiss the action against the However, it has been held that when a claim is based on a
moving defendant. Taliaferro v H cogs (1065) 2.37 CA2d 73, 46 CR federal statute, but plaintiff has nevertheless pleaded diversity of
643. citizenship, such reference will be regarded as surplusage and the
 §14.65 SECURITY FOH COSTS 494
,<
sfate security requirements will not apply. Fielding v Allen (2cl
Cir 1950) 181 F2d 163.
This holding applies even if plaintiff states a claim under fed-
eral law which, in a state court, would clearly fall within the qual-
ifications of a state security for expenses statute. Weitzen v Keams
(SD NY 1966) 262 F Supp 931.
One federal court has held that California's security require-
ment in defamation actions (now held unconstitutional) imposes a
"substantive" liability applicable in diversity cases. Keller Re-
search Corp. v Roquerre (SD Ca11951) 99 F Supp 964. The ruling
in Keller has been questioned several times. The Ninth Circuit in
[ejjerscn: v Stockholders Puh. Co. (9th Cir 1952) 194 F2d 281, held
that federal procedure requirements ii.e., Fed H Civ P 4(a)) over-
ride state substantive law and require a clerk to issue summons
"forthwith" on filing a complaint, whether or not security is ten-
clered, notwithstanding California's statute.
The court in Trophy Prods., Inc. v Sperling (SD Cal 1955) 17
FRD 416, 419, interpreted [ejjerson broadly and concluded (in
construing the security requirement relating to nonresident plain-
tiffs) that:
In the absence of federal statute or rule, or a controlling decision of a
reviewing court of the United States requiring the plaintiff to Iurnisl:
security for costs, it is my view that I have no power to require it.
By this language, Trophu Prods., Lnc., implicitly holds that most
security requirements are procedural, not substantive.
§14.65 2. Local Rules and Inherent Court Powers
When state security statutes have not been held substantively
binding ill diversity actions, some federal courts have incorpo-
rated state provisions applicable to nonresident plaintiff's in local
federal rules, adopted under Fed R Civ P 83. These rules either
specifically prescribe security requirements or generally au-
thorize use of state procedure whenever federal law is silent. On
local rules, see Russell D Cunningham (9th Cir 1956) 233 F2d806
(specific Cuam rule: security approved); Cortlioru v Cleghorn
(SD Mo 19.50) 91 F Supp 326 (specific rule; security denied);
Fischer v Karl (ED NY 1946) 6 FRD 268 (general rule; security
den ied).
Some federal courts have chosen not to adopt local rules pre-
scribing security but have relied on traditional equity practice or
495 SECURITY FOR COSTS §14.65
the powers inherent in trial courts to regulate their business and
determined on an ad hoc basis whether to require security. For
procedures involving nonresident plaintiffs, see, e.g., Rogers v
Arzt (SD NY 1941) 1 FRD 581 (security denied); Kraft v R. H.
Maci) & Co. (SD NY 1943) 3 FRD 54 (security granted).
The federal district courts sitting in California have adopted
several local rules specifically pertaining to security for costs. No
cases have yet been found applying any of these rules.
Local Rules 7(d) and 8 of the Central and Southern Districts of
California provide procedural requirements for bonds filed with
the court and authorize the clerk to approve all bonds except
when statutes require approval by a judge. Rule 7(d) of both dis-
tricts provides the clerk will approve bonds "prescribed by
statute, order of court or stipulation of counsel,'" suggesting
obliquely that the court has discretion to order security when it
feels justice would be served.
Local Rule 15 for the Northern District of California and Local
Rule 14 for the Eastern District provide that the court, on its own
motion or that of any party, may order any party at any time to post
security in any amount for costs or for performance of require-
ments imposed by the court in a proceeding. The rule provides
that the security ordered may be authorized by statute, rule, or
court order; the latter authority is apparently derived from the
court's inherent powers. Rule 15 also provides procedural re-
quirements for honds filed with the court.
Rule 1.5 of the Northern District and Rule 14 of the Eastern
District are similar to Local Rule 2 of the Southern and Eastern
Districts of New York, which has been applied in two primary
areas, shareholder derivative suits and vexatious litigation. For
illustration of its successful use in shareholder suits, see Leighton
v One William, Street Fund, Inc. (2d Cir 1965) 343 F2d 565;
Leighton v Paramount Pictures Corp. (2d Cir 1965)340 F2d 859.
As a deterrent to vexatious suits, Rule 2 has been used several
times by defendants. See Miller v Suffield (2d Cir 1957) 249 F2d
16 (security granted), and Farmer v Arabian Am. Oil Co. (2d Cir
1960) 285 F2d 720 (security vacated).
One federal court in California expressed the view that it was
wholly without power to order a party to post security for costs
unless specific authority for such an order was found in a federal
statute rule, or controlling decision. Trophy Prods., Inc. v Sperl-
ing (SD Call955) 17 FRD 416; see §14.64. This view is not shared
 §14.g6 SECURITY FOR COSTS 496
•..r
(by any of the courts whose opinions are cited earlier in this sec-
tion, and whose concept of the inherent discretionary powers of
trial courts is much broader. Trophy Prods., Inc. has not been
cited or followed by any federal courts.
A federal local rule may not contravene a federal statute or the
policy underlying a federal statute. For example, security may not
be required in actions brought under the Federal Employers'
Liability Act becase this would inhibit employees from bringing
their actions and restrict their choice of venue beyond that in-
tended by Congress. DeFilippo v Pennsylvania R.R. (ED NY
1948) 7 FRD 730. A noticed motion and hearing before dismissal
of an action for failure to post security are presumably necessary to
satisfy the requirements of procedural due process. See Beau-
dreau v Superior Court (1975) 14 C3d 448, 121 CR 585; Allen v
[ordanos'Lnc. (1975) 52 CA3d 160,125 CR 31, discussed in §14.2.
For a further discussion of application of state security for ex-
penses provisions in federal diversity actions, see generally, 7A
Wright & Miller, FEDERAL PRACTICEAND PROCEDURE§1835
(1972); 6 MOORE'S FEDERAL PRACTICE§54.73 at 1451-1459 (2d
ed 1975).
§14.66 B. Federal Question Actions
VVhen substantive claims before federal courts arise from fed-
eral, statutes, state security for costs provisions do not govern the
litigation.
Several federal securities laws contain provisions authorizing
the trial court in its discretion and on a motion noticed for hearing
to require security for payments of costs, including reasonable
attorneys' fees. See 1.5 USC §77k(e) (Securities Act of 1933); 15
USC §§77ooo(e), 77www(a) (Trust Indenture Act of 1939); <lnd1.5
USC §§78i(e), 78r(a) (Securities Exchange Act of 1934).
Generally, these provisions have been restricted in effect to
civil actions expressly provided for by the securities laws and do
not apply to implied private actions, such as those to enforce Rule
10b-.5. McClure v Borne Chem, Co. (3d Cir 1961) 292 F2d 824.
Even when security is not required under a specific statute, it
may be required (1) under local court rules for nonresident plain-
tiffs (Levine v Bradlee (ED Pa 1965) 248 F Supp 395; (2) under
pendent nonfederal claims (Kane v Central American Minillg &
Oil, Inc. (SD NY 1964) 235 F Supp 559); and (3) to deter
497 SECURITY FOR COSTS §14.66
shareholder derivative suits (Leighton v Paramount Pictures
Corp. (2d Cir 1965) 340 F2d 859).
There are also a limited number of other situations in which
security for costs must be furnished in federal court.
Federal Rules of Civil Procedure 65(c) requires the applicant
for a restraining order or preliminary injunction to furnish security
in an amount determined by the court for payment of costs of any
party later found to be wrongfully enjoined.
In patent infringement actions, under 35 USC §283, the court
may require the posting of security when a patent on its face
indicates plaintiff is unlikely to prevail. Fischer v Karl (ED NY
1946) 6 FRD 268.
Several admiralty rules require posting of security for costs in
maritime actions and libels. Fed R Civ P E(2)(b), E(5)(c), F(l)
(Supplemental Rules for Certain Admiralty and Maritime Claims).
In all federal courts, the statutory provision (28 USC §1915), .
relieving indigents from furnishing security for costs in federal
actions, applies. Under this section, any person who presents an
affidavit to a federal court that he is unable to prepay costs or
provide security for costs may be relieved of the obligation to do
so by any court of the United States. The affidavit must describe
the nature of the action or defense and present a statement of the
declarant's belief and whatever facts support the belief that he is
entitled to redress. Absent contrary evidence that the affidavit is
not brought in good faith, a federal court will then permit an
indigent to proceed in forma pauperis.
In all proceedings, even in federal courts, a noticed motion and
hearing before dismissal of an action for failure to post security
presumably are necessary to satisfy the requirements of pro-
cedural clue process. See, e.g., Beaudreau v Superior Court (1975)
14 C3d 448, 121 CR 585; Allen ojordanos' Inc. (1975) 52 CA3d
160, 12.5CR 31.